Did you buy a coffee machine with a tax refund? It may have affected Australia’s interest rate | Consumer spending

One of the first things many Australians did after receiving a tax refund or lower mortgage rate last year was buy a sofa, deep fryer or coffee machine.

The purchases, which were also evident in company earnings published this week, came after households had endured years of high living costs and consumption had been weak up to that point.

Policymakers did not think homeowners or renters had enough capacity.

This increase in demand for such goods – along with rising prices – became a major factor in the Central Bank’s decision to raise interest rates because it was concerned that inflation would expand.

“The things that are really driving the rise in inflation are housing, durable goods and market services,” RBA governor Michele Bullock said last week.

_{Sign up: AÜ Breaking News email}

So why are people increasingly buying durable goods (products designed to last at least three years, such as refrigerators, televisions, and vehicles)? What does this tell us about Australians’ attitudes towards debt and how does this affect interest rates?

While goods inflation remained weak throughout much of 2024 and early 2025 amid a cost-of-living crisis, it suddenly accelerated.

AMP’s head of investment strategy and chief economist, Shane Oliver, says spending patterns show Australians need some fiscal relief to regain self-confidence.

“People seem to be enduring higher levels of debt than previously thought,” says Oliver.

Breville has reported double-digit revenue growth in Australia over the last six months, boosted by rising coffee machine sales. While some customers purchased simple drip devices and, at the other end of the price scale, touch-screen make-to-order machines, most purchased mid-range models priced around $700.

Premium furniture retailer Nick Scali has reported a 13% increase in sales revenue from its Australia and New Zealand business, while profit margins have also increased.

Meanwhile, online retailer Temple & Webster’s revenue rose 20%; However, many customers expected discounts, which reduced the company’s profitability.

Such discretionary purchases have been made despite very high levels of household debt in Australia, both historically and compared to the rest of the world.

While mortgage and rent stress has traditionally been defined as more than 30% of pre-tax income being spent on loan repayments and rent, many Australians are now either content (or resigned) to the fact that they will breach this benchmark due to high housing costs.

It seems someone is willing to spend as long as they have a job and Australia has strong employment levels.

‘We are renewing the car’

Ashwin Clarke, senior economist at the Commonwealth Bank, said Australians were willing to spend on discretionary items such as household items as falling inflation and interest rate cuts brought respite after some “pretty challenging” years.

“We had three interest rate cuts last year, which helped increase household incomes,” says Clarke. “We’ve seen mortgage borrowers increase their spending more than other housing groups in the last few months.”

CBA’s analysis of anonymous payment data from 7 million customers found that household spending rose 0.5% in January. It recorded growth for 16 consecutive months.

Its data shows consumers are spending money on tickets, travel and fitness, with major events such as Australian Open tennis and summer festivals drawing strong crowds.

Strong clothing and hardware purchases were also noted.

There’s also evidence that mortgage-free young adults are looking for ways to overcome affordability pressures without giving up forbearance altogether, even if it means getting into more debt.

This contrasts with the historical, cautious response of abandoning discretionary items altogether when faced with financial pressure.

Prof Gary Mortimer, a retail expert at Queensland University of Technology, says over-55s remain the group most likely to buy durable goods.

“They renew televisions, they travel… they renew cars,” he says. “They are the biggest spenders right now.”

When the RBA raised the cash rate this month, ending the shortest rate-cutting cycle in 30 years, it cited housing and consumer durables as the key drivers of a resurgence in headline inflation.

The RBA also said there are constraints on the economy’s ability to provide what people and businesses demand, leading to rising prices.

Although durable goods still make a modest contribution to the rise in the consumer price index, central bankers view them as a “canary in the coal mine” for the broader economy, given that they could herald more persistent inflationary pressures that are difficult to reverse.

While the central bank expects demand for both housing and durable goods to slow and inflation to fall in these sectors, it warned that this outlook is “highly uncertain.”

The question now turns to whether rising inflation will erode confidence or whether Australians will continue to buy more sofas and coffee machines.

This earnings season has yielded mixed answers to that question, with Nick Scali’s shares falling more than 15% after reporting earnings on Friday.

Investors reacted to weaker-than-expected January sales figures; This may indicate that some of last year’s buying enthusiasm has already faded as cost-of-living pressures reignite.